Financial Accounting Assignment

Financial Accounting Assignment

Answers for Reading 1

Ans 1. Restatement in the Financial Statement deals with the omissions and the misstatement of the financial records. Eron's revising and restatement of the company's profits showing a downward fall over the years raised questions about the authenticity of the financial accounts prepared by Eron. There are four conditions that exists for the audited financial statements: first is the misstatement of the accounts by using aggressive accounting methods or misapplication of GAAP, second is the company's accounting system neither detect or prevent the misstatement by the company, third is that the external auditors are unable to detect the misstatement before the financial statements are presented finally and the fourth condition is that in case of restatement or reissuance of the financial statement s then misstatement is discovered subsequently.

Ans 2. The author's reading 1 say 'we should view personal testimonials of auditor independence with skepticism' that although auditors while performing auditing of an organization try to be professional and independent in making their decisions but according to many researchers in a society where there are several kinds of factors having an impact on the decision making make it difficult for the auditors to remain unbiased. According to the researches mentioned in the reading 1 there are certain monetary and non-monetary benefits offered to the auditors by the companies in order to make conclusions about the financial statements in favor of the company. Apart from the monetary benefits there is also certain demographic factor which affects the practices of the auditors while conducting auditing of an organization.

Ans 3. The phrase 'our arguments suggest a pessimistic prognosis for would be reformers' means that negative predictions about auditing can be turned positive if certain recommendations and suggestions are followed with bringing change in the auditing process so that the negative views about the auditors can become positive. The researchers have mentioned two arguments in their article that suggest the pessimistic prognosis that need to reform in the future. The two arguments mentioned are moral seduction and issue cycling. It has been the view of the people that it is morally difficult for the auditors to resist the pressures from different forces in the market while conducting auditing and keep themselves unbiased while drawing conclusions about the company's financial statements. The other argument includes issue cycling which means that their so many issues occurring one after the other ...